Sowing or Reaping?: Government and Big Business in Early Republican Pennsylvania Andrew M. Schocket College of William and Mary
 Louis Hartz, in his seminal work Economic Policy and Democratic Thought: Pennsylvania, 1776-1860, argued that the Pennsylvania state legislature took an active role in fostering the development of corporate enterprise during the first three decades of the nineteenth century.1
 While subsequent studies have contested some of Hartz’s propositions, none have taken issue with his basic premise that the Commonwealth of Pennsylvania created and supported for-profit enterprises such as banks, canals, and insurance companies.2 Most works on this subject, especially in Pennsylvania, have had the state at their center, as if viewing the world through the windows of the statehouse. However, looking from the other direction, that is, from the Philadelphia offices of banks, insurance firms, and internal improvement companies, yields a much different picture of government-business relations. The men who ran these big businesses clearly had an ambivalent relationship with the Pennsylvania General Assembly, one in which the legislature was far from being a pro-active or even necessarily sympathetic partner.
 The evidence most exhibited to make the case for legislative encouragement of corporations, especially in Pennsylvania, is the state’s ownership of stock in both banks and in internal improvement companies, which led Louis Hartz to use the term “mixed enterprise” to describe Keystone-State corporations. However, a close look at the timing and circumstances of state acquisition of corporate shares contradicts Hartz’s rosy depiction.
 Rather than either as a boon for the bank and its private investors or as a sign of government-business partnership, the state’s ownership of bank stock was designed to tax bank profits. As a requirement of the Bank of Pennsylvania’s first charter in 1793, the state invested $1 million in bank stock, an impressive amount. However, Pennsylvania paid for most its stock with United States bonds valued above market price, and received its bank stock at below market-price, an immediate market-value gain of over $50,000 that amounted to a one-time bonus from the bank in exchange for the charter.3 The state bought the rest of its bank stock with a loan from the bank. The practical effect of the stock purchase was that between 15% and 25% of banks profits would go to state treasury without the state having put up a penny of cash.4 In legislative haggling over the Farmers and Mechanics Bank charter in the 1808-1809 session, the opponents of the bank clearly were the ones who wanted the state to have a higher stake in the institution’s stock.5 In the end, the Farmers and Mechanics Bank issued the state $75,000 in shares in exchange for incorporation.6 The Commonwealth eventually owned stock in a number of banks, but from the banks’ point of view, state shareholding represented a regrettable cost of doing business rather than a manifestation of joint venture.
 In 1814, the legislature began to forego stock purchases and instead required new banks to pay the state a certain percentage of their dividends, depending upon the individual charter. This change certainly did not help the new banks: they were giving up a lower percentage of their dividends to the state than previously chartered ones, but they no longer received United States bonds they could use to back their note issues, so their gross profits were lower, too.7 Thus, the legislature had streamlined the chartering process—the stock “purchases” had become increasingly convoluted—negotiating with new charter applicants an appropriate cash bonus and demanding a certain percentage of the institution’s dividends for the coffers in Harrisburg. The state had not acquired bank stock out of a magnanimous effort to help bankers and bank investors or because of any general desire to promote commerce: it did so strictly as a form of revenue generation, that is, as a way of taxing those institutions, and in 1814 had simply found an easier way to do so.
 A major ingredient in the passage of bank charters, then, was the negotiation of the terms of taxation, an important matter for the legislature considering that a large portion of the state’s revenue came from bank dividends.8 However, other corporations such as insurance companies and coal mining companies generally did not face the same kind of legislative gauntlet, nor did the General Assembly ever invest in insurance or coal-mining company stock. The question often was one of profitability: if the applicant institution seemed certain to make a profit, then the legislature tried to find a way to tax it; if not, then the legislature did not bother. In between, firms involved in riskier activities such as coal mining, manufacturing, and insurance found themselves in a nebulous area where they hoped to avoid taxation. Insurance companies in particular often walked a careful line, claiming poverty to the legislature in Harrisburg while courting investors in Philadelphia by emphasizing the likelihood of steady returns.9
 Meanwhile, none of these corporations—banks, insurance companies, or coal mining companies—ever asked the legislature to buy stock or requested loans from the state, an unmistakable sign that business leaders did not think of the government as a desirable associate. Company directors balked at yielding stock to the state for the simple reason that doing so cut into their profits. Furthermore, boardmembers did not relish the idea that having the state as a stockholder made corporate decision-making potentially more open to the scrutiny of a potentially hostile legislature.
 Turnpike, canal, and river navigation companies, unlike banks and insurance companies, often solicited state aid and investment, and received it in the form of loans, stock purchases, and direct grants. However, legislators never attempted to carve a pound of flesh from these fledgling companies, nor did project boosters try to wheedle money from a free-wheeling General Assembly when applying for charters. Internal improvement company directors hesitated to include the state as a stockholder for the same reasons that bank officials tried to avoid having the government as an investment partner: such relationships lowered potential returns to investors while making the management subject to the prying eyes, open hands, and loud mouth of every Pennsylvania politician. After all, from Robert Morris’s early 1790s involvement in the Bank of North America, the Delaware and Schuylkill Canal, and the Susquehanna and Schuylkill Canal through the 1820s, the same men who sat on the boards of the canal companies were often bank or insurance boardmembers, as well, and so had a jaundiced view of state-business relations.10 Meanwhile, legislators knew that internal improvement companies were risky enough. To require companies to give the state stock—as the assembly did with banks—might discourage the few investors those ventures could attract in the first place, and probably would not be worth the General Assembly’s time.
 Nonetheless, the state seemingly had an abundance of one crucial thing that inland navigation companies often lacked: money. After the initial high hopes of quick construction and grand profits were dashed, inland navigation company officials often appealed to the legislature for money to finish their projects, emphasizing how much their pet projects could contribute to the common weal. Taken individually, these appeals rarely succeeded. Internal improvements were inherently local, and so even the most zealously enthusiastic of promoters faced great difficulties getting company subsidies past politicians who faced annual reelection in the counties where taxpayers would pay the brunt—but not reap the rewards—of such largesse.
 Internal improvement company supporters could count on one thing that bank directors could not: a nearly unanimous support for the general principle behind their project, in this case, better transportation. Projects whose legislative sponsors managed to find friends from different districts but with similar causes found the state legislature to be a good place to look for capital. State aid to internal improvement companies was considerable, but nearly invariably came bundled in sprawling omnibus bills providing infusions of cash to projects through almost every part of the state, sometimes every county.11 From 1791 through 1817, the state allocated over $2.4 million for loans and stock purchases in various projects; by 1822, the state owned $2.4 million in internal improvement company stock alone.12
 The General Assembly voted to aid navigation and turnpike corporations for a variety of reasons, but the desire for these companies to make a profit, that is, to encourage corporate enterprise, was at the bottom of that list. Despite granting aid to many internal improvement corporations, the state allowed an even larger number of turnpike and navigation companies to fail because they did not generate enough initial subscriptions for the charter to be patented by the state.13 More than anything else, the opportunity to provide for transportation to market, thus contributing greatly to the overall economic development of their districts, remained the paramount objective for legislators in securing help for struggling local projects. Bringing state funds back home did not hurt, either: providing employment, especially during difficult economic times, gave representatives another way to please their constituents.14 Any encouragement of corporations in the funding of canal and turnpike companies was incidental; rather, the state supported internal improvement companies to foster the success of non-corporate enterprize, much of which depended upon a better transportation network. Perhaps more to the point, legislators supported internal improvements as the most effective and prominent method of bringing home state money to their respective districts.
 Another kind of evidence put forward as part of the argument for government encouragement of and cooperation with enterprise is the mere granting of charters to companies. True, the legislature can be said to have encouraged enterprise merely through acts of incorporation which bestowed the state’s imprimatur and granted privileges such as eminent domain, authorization to print banknotes, and legal protection for investors.15 Tellingly, historians have used the word “creation” to describe the legislative role in incorporation, thus giving the state the central role of agency.16
 But to say that the granting of such charters with their privileges amounted to government activism puts the horse before the cart. No would-be bank directors or public-improvement booster needed prodding from the state.17 The chartering process began not in the statehouse but with a group of private individuals gathering to create an association to pursue a given goal, whether it be bridging a river, building a turnpike, or running a bank. They then petitioned the legislature in the form of a bill enumerating the articles of the potential charter. Although the passing of charters often involved intense negotiation over specific provisions, just about every article of charters passed by the Pennsylvania legislature had been written into the bill by the applicants, not inserted by representatives.
 Those articles even encompassed clauses clearly intended to be checks on corporate power and the influence of large stockholders. Why did the companies’ petitions include these boundaries, such as limits on individual shareholding and progressively scaled stockholder voting? Quite simply, because that was the way corporate charters were written.18 Just as Americans copied British methods of banking, insurance, and engineering, they copied British charters extremely closely, and British corporate charters, especially those for canals, included such safeguards.19 The chartering process, rather than a method of governmental encouragement or a kind of state-initiated creation, formed what amounted to be a toll-booth on the turnpike of success for Pennsylvania corporations.
 Even anticharter movements often had business-backed concerns in the statehouse. The Bank of Philadelphia’s charter application floundered in Lancaster for two years, partly because of general suspicion of banks and monied institutions, but largely because the Bank of Pennsylvania lobbied strenuously against it, offering the state $200,000 in cash not to charter another Philadelphia-based bank.20 The Schuylkill Navigation Company, too, had problems acquiring a charter, because a boardmember of the potentially competing Union Canal Company held the General Assembly seat for Philadelphia County.21 True, anticharterist speechmakers came out of the woodwork when individual bank charters came before the General Assembly. However, they disappeared just as quickly when omnibus bills supporting internal improvement companies came up, especially ones that covered their districts. Much anticharter posturing in the legislature was just that, either putting a principled face on attempts to wring more cash out of banks or reflecting sponsorship by already-chartered corporations to prevent competition.
 In their operations, too, corporate leaders showed little respect for the state’s interests. For some corporations, the legislature had the right to appoint a minority of directors to the company’s board. The stockholder-elected directors of Bank of Pennsylvania simply ignored the few state-appointed directors who lived close enough to Philadelphia to attend board meetings, while the other public appointees did not show up at all.22 Meanwhile, the state never bothered to fill many of the other corporate appointments to which it was entitled, a condition which company boards made no effort to remedy.23 Some charters required rotation in office for corporate boardmembers, or that a percentage of boardmembers be farmers or tradesmen; corporate boards ignored these rules with impunity.24 Many corporations also neglected to file the annual reports with the state, despite laws requiring such disclosure. For their part, neither the legislature nor the governor ever did anything to enforce those strictures, leaving corporations to run themselves pretty much any way they pleased.
 The men who ran Pennsylvania corporations in the first quarter of the nineteenth century, then, considered the legislature neither as a partner nor an enemy. Rather, they viewed it, strangely enough, a bit like a capricious minor god. For incorporation, would-be company leaders had to bring some sort offering, and the bigger the corporation, the greater the sacrifice. After that, the corporate officers’ opinions on the deity changed with the weather—and vice versa. The state did have ultimate authority, but mostly stayed aloof from corporate affairs unless appealed to. Corporations could entreat the legislature for rewards and for protection against competitors or economic storms, but rivals could do the same, and no one could predict the outcome. Everyone, however, had at least to claim fealty or risk the wrath of the representatives. From an historiographic point of view, the naming of this minor god is important; perhaps we should call it “Commonwealth.” What corporate behavior vis-a-vis the state from 1800 to 1830 most clearly indicates is that the corporations’ principal god was not Commonwealth. It was Mammon.

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Footnotes:1. Louis Hartz, Economic Policy and Democratic Thought: Pennsylvania, 1776-1860 (Cambridge, 1948).2. For succeeding historiographic treatments of the subject, see Robert A. Lively, “The American System: A Review Article” Business History Review 29 (Spring 1955) 81-96, 1955); Harry N. Scheiber, “Government and the Economy: Studies of the ‘Commonwealth’ Policy in Nineteenth-Century America” Journal of Interdisciplinary History 3 (Summer 1972), 135-151; and William G. Shade, “Louis Hartz and the Myth of Laissez Faire” Pennsylvania History 59 (July 1992), 256-273.3. The exact figure was $54,187.17. To the Senate and House of Representatives of the Commonwealth of Pennsylvania, the Memorial of the President and Directors of the Bank of Pennsylvania (Philadelphia, 1805), 6.4. The state received 942 shares in exchange for its United States bonds and 625 shares through its loan from the bank. Private subscriptions brought the total shares sold to 6,250, each worth $400. According to my calculations, 15.7% of all the bank’s dividends up to 6%, and a total of 25.7% of all dividends above 6% would go to the state treasury. To the Senate, 5-6.5. Joseph Clay to Joseph Tagert, February 17, 1809, Historical Records, Box 1, 1807-1820, Accession 1658. Farmers and Mechanics National Bank Collection, Hagley Museum and Library.6. An Act to Incorporate the Farmers and Mechanics Bank (Philadelphia: Jane Aitken, 1809).7. The state generally took 8% of the dividends from the banks chartered in 1814. Thus, the percentage of their dividends paid in taxes was lower than the Bank of Pennsylvania’s, but the total dividends were lower in proportion to private investment because the banks received no United States bonds from the state, even at below market value as had the Bank of Pennsylvania. From the new banks’ point of view, the change was a wash at best.8. See Richard Sylla, John B. Legler, and John J. Wallis, “Banks and State Public Finance in the New Republic: The United States, 1790-1860” Journal of Economic History 47 (June 1987), 391-403.9. One lobbyist for the Phoenix Insurance Company pointed out the difficulty “to convince the Members that the business is not profitable when the company can afford to lend $60,000.” Joseph Reed, Lancaster to Paul Beck, December 30, 1803, McAllister Collection, HSP.10. From 1800 to 1825, annually, about a third of the seats on Philadelphia-based corporate boards were occupied by individuals or families with places on multiple boards; this is based upon calculations made from a database consisting of boardmembers, compiled from city directories and corporate records. More details are available upon request to the author.11. For a comparison of Pennsylvania’s and Virginia’s spending on internal improvements, see John D. Majewski, A House Dividing: Economic Development in Pennsylvania and Virginia Before the Civil War (New York: Cambridge University Press, 2000).12.  Samuel Breck, Sketch of the Internal Improvements Already Made by Pennsylvania; with Observations Upon Her Physical and Fiscal Means for Their Extension; Particularly As They have Reference to the Future Growth and Prosperity of Philadelphia, 2d edition (Philadelphia: M. Thomas, 1818), 5; Report on Roads, Bridges and Canals, Read in the Senate, March 23, 1822 (Harrisburg: C. Mowry, 1822), 3, 5.13. As part of almost all charters, the state required that the company present a list of a minimum number of subscribers and subscriptions for the governor to authorize the letters patent to put the charter in force. As of 1822, of the 146 turnpike companies chartered by the state, 84 had acquired letters patent, 30 of 49 bridge companies had acquired them, and 9 of the 18 inland navigation companies had gotten theirs; Report on Roads, Bridges and Canals, Read in the Senate, March 23, 1822 (Harrisburg: C. Mowry, 1822), 3, 5.14. At the height of the depression following the Panic of 1819, a committee of the Pennsylvania Senate proposed “liberal appropriations for internal improvements [to] assist its citizens with the means of employment at a period of difficulty,” all the better to do “when labor can be commanded at half its customary rate... [and] carry relief to the doors of thousands, and at the same time, increase the fixed wealth of the state to a greater extent than can ever again be done by the expenditure of a similar sum.” Report of the Senate, Appointed to Enquire Into the Extent and Causes of the Present General Distress (Lancaster: Pennsylvania Senate, 1820), 15. William G. Shade, declare’s Louis Hartz’s characterization of much internal-improvement spending as pump-priming “anachronistic,” but one would be hard-pressed to find any policy that embodies that principle more fully at any time before Maynard Keynes methodically delineated it in the twentieth century. Shade, 259.15. The argument among business historians over the development of limited liability is considerably overblown: from the beginning, investors assumed that stock ownership in a chartered corporation did limit liability to level of subscription. Especially telling in this regard are the clauses in bank charters holding directors directly financially responsible for a range of potentially risky practices, clearly suggesting that stockholders would be in the clear should the bank fail. Furthermore, given the problems with debt collection and bankruptcy law in the early republic, any attempt to collect debts from hundreds of investors would prove insuperable, especially given the dilemma of who to charge when stocks changed hands. For the best discussion of the topic, see “Appendix: Stockholders’ Liability” in Edward J. Perkins, American Public Finance and Financial Services, 1700-1815 (Columbus, OH, 1994), 373-376.16. The most recent (and a fairly typical) example found by the author is William G. Roy, Socializing Capital: The Rise of the Large Industrial Corporation in America (Princeton: Princeton University Press, 1997), 16.17. See Guy S. Callender, “The Early Transportation and Banking Enterprises of the States in Relation to the Growth of Corporations,” Quarterly Journal of Economics 17 (November 1902), 111-162.18. See Richard Nelson and Stephen Winter, An Evolutionary Theory of Economic Change (Cambridge: Harvard University Press, 1982), for an analysis of the ways that businesses reuse familiar routines and structures.19. See for example J.R. Ward, The Finance of Canal Building in Eighteenth-Century England (New York: Oxford University Press, 1974), and George Heberton Evans, Jr., British Corporation Finance, 1775-1850: A Study of Preference Shares (Baltimore: The Johns Hopkins University Press, 1936), 13-14.20. Stephen N. Winslow, Biographies of Successful Philadelphia Merchants (Philadelphia: James K Simon, 1864), 167; according to one legislator in 1803, “the memorial from the Bank of Pennsylvania has had considerable effect upon the members, and in my opinion will prevent a charter to the Bank of Philadelphia [in this session].” Joseph Reed to Paul Beck, December 30, 1803, McAllister Collection, Historical Society of Pennsylvania.21. Edward S Gibbons, “The Building of the Schuylkill Navigation System, 1815-1828” Pennsylvania History 57 (January 1990), 17.22. Mathew Carey called the Bank of Pennsylvania’s appointed directors “men of straw.” Mathew Carey, Reflections on the Renewal of the Charter of the Bank of Pennsylvania, and An Examination of the Terms of Renewal, Proposed by the Board of Directors, Together With a View of the Immoderate Power Possessed by a Small Number of That Body (Philadelphia: M. Carey, 1829), 7.23. Hartz, 263-267.24. For example, the Farmers’ and Mechanics’ Bank charter called for a majority of the directors to be “farmers, mechanics, or Manufacturers,” but after the first few years more than 7 out of the 13 seats were occupied by men whose primary interests were clearly mercantile. An Act to Incorporate the Farmers and Mechanics Bank (Philadelphia: Jane Aitken, 1809).An 1824 act rechartering several banks forbade boardmembers to serve more than three out of any four years, and that no more than three fourths of a sitting board could be reelected, but was not observed. Miners’ Bank of Pottsville, An Act to Re-Charter Certain Banks, Passed the Twenty-Fifth Day of March, 1824, and the By-Laws of the Miners’ Bank of Pottsville (Pottsville: Benjamin Bannan, 1831).